Where are the post-pandemic opportunities for Chinese construction businesses?

The Government is sparing no effort

Perhaps because increased infrastructure investment is a textbook government response to economic crises, or because enclosed construction sites and the nature of the industry make social distancing relatively easy during a pandemic, the Government began preparing for construction to resume—and even expand—while lockdown was still in place.

{ad}

• On 1 April, while lockdown was still in place, the Government announced an expert panel to seek “shovel-ready” projects that could resume work;
• On 28 April, New Zealand moved down to Alert Level 3, and construction became one of the first industries to resume work;
• On 3 May, Cabinet approved legislation to fast-track approvals for “shovel-ready” projects, with the legislation to be completed in June.
• On 14 May, the Government unveiled a NZ$50,000,000,000 Budget, increasing investment in construction-related areas including infrastructure, transport and housing.
• On 24 May, the Government announced that building consent exemptions under the existing Building Act would be expanded by the end of August, aiming to reduce councils’ workloads so they could process high-risk building projects more efficiently.

Major projects will take time to make an impact

Although the Government appears to have everything in place, a recent Westpac report shows that some economists are pessimistic about construction’s post-pandemic prospects. Senior economist Satish Ranchhod believes that, while construction has not suffered the immediate impact seen in aviation and tourism, it will soon face a downturn and substantial job losses. He estimates that as many as 20,000 of the 250,000 construction-related jobs could be at risk.

Asked whether government infrastructure investment could have a positive impact, Ranchhod said that, given the substantial workload already in place before the pandemic and the backlog accumulated during lockdown, fewer new construction projects than usual would reach the market or pass through consenting processes over the coming months, despite government efforts to speed up approvals. For various reasons, “more projects than usual may also be cancelled”. The Government’s substantial infrastructure investment is therefore unlikely to deliver results in the short term, and its full impact may not be evident until the end of next year.

Most “shovel-ready” projects currently awaiting government approval aim to develop urban areas or improve transport and the environment. They will clearly benefit the country and its people over the long term, while major projects require large workforces and can create more jobs. In the short term, however, these government-led projects face practical obstacles to delivering rapid results, including complex preparation and operations, lengthy construction periods, substantial funding requirements and technical challenges. Reluctant though we may be to admit it, Ranchhod’s prediction that “even if capacity is freed up elsewhere in the construction sector, infrastructure work may still begin later than forecast in the Budget” is well founded.

At a forum organised by the Chinese Building Industry Association on 21 May, leading figures from the Chinese construction community shared their views and practical suggestions on avoiding economists’ worst-case forecasts and persevering through adversity towards recovery.

The advantages of private construction businesses

As a private-sector construction practitioner, OKLA Albany developer Frank Li offered this assessment of private construction businesses: “Private developers are the backbone of New Zealand’s government property market. Whatever the size of individual projects, these seemingly modest developments collectively drive the industry forward and provide substantial employment.”

Central government strategic plans change every three years, while local governments have ten-year plans. The resulting budget adjustments and coordination between government agencies at different levels can all introduce uncertainty into major projects requiring long-term implementation. By comparison, some smaller private-sector projects can be launched quickly, have short construction periods and require relatively limited funding and technical expertise. If the Government provided policy support for private businesses, or even used funding earmarked for future major infrastructure to support smaller private-sector projects first, it could have a more immediate effect on business survival, job security, consumer spending and economic recovery.

In an English-language report he wrote, Franky Li remarked humorously: “On the one hand, compared with many large private construction developers in the market, I consider myself a small developer. On the other hand, I see myself as a major developer in New Zealand’s residential market, or at least a significant contributor, because the number of new homes we have supplied matches the scale of construction under the current Government’s KiwiBuild programme.”

Using his own company’s projects as examples, he discussed how small and medium-sized private businesses can respond more flexibly to rapidly changing market conditions when initiating and building projects. He posed a question on behalf of many Chinese businesses: “I am certain our projects are shovel-ready. The key question is whether the Government’s ‘shovel-ready’ policy is ready.” Citing KiwiBuild, Franky argued that the Government should study market supply in depth rather than simply focusing on demand.

He urged: “Only solutions addressing both supply and demand have real meaning. Understanding the market and studying supply issues in depth to develop balanced policies that encourage more development will be crucial. To me, that means a healthier housing market, an efficient skilled labour market and, in turn, a more sustainable economy.”

How private businesses can find opportunities in policy

Xu Li, president of the Chinese Building Industry Association, noted that although the effects of “shovel-ready” projects and their accompanying fast-track approval process would be difficult to see in the short term, they could provide a “burning platform” for changing government policies that had remained immovable for years, creating new opportunities for Chinese businesses.

• The fast-track approval process signals a willingness by the Government to adjust the Resource Management Act. Even if temporary and limited to specific projects, it is a rare breakthrough. It could eventually extend to other areas of construction, simplifying and accelerating approvals and making private-sector investment and development more efficient.
• Both the “shovel-ready” initiative and the new financial year’s Budget include commercial and residential projects, offering Chinese construction businesses an unprecedented opportunity to participate in government projects. Seizing this opportunity and building a strong reputation that makes such participation routine in the post-pandemic era would be highly significant for all Chinese businesses.

“However difficult things become, private construction businesses must first persevere and strive to survive the pandemic’s impact, then regroup once the pandemic and safety restrictions have passed. We also hope this crisis prompts the Government to adjust investment policies and approval processes so businesses and the country can emerge successfully, renewed,” Xu Li said.